Richard Vann, RVA Group, UK, explores the process and benefits of asset retirement planning, and why operators should start thinking about the end of a tank’s life earlier than expected.
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eing prepared for the retirement of an asset is a fundamentally crucial and strategic way to approach the operational lifecycle of a tank farm, or even an entire terminal. In many parts of the world, it is also a legal requirement – to comply with international financial provisioning standards such as FAS143 in the US, and IAS 37 in Europe. The roots of such standards date back to the days of events such as the ‘Enron scandal’, when the American energy giant was declared bankrupt. The company was building and running power facilities throughout the US and overseas – seemingly successfully. However, despite sizable annual revenues, no financial provisions were being made to fund the eventual decommissioning of Enron assets when the time came to take them offline. The liquidation of this company – and the fact that the government had to pay for the retirement of their plants – certainly acted as a lesson learnt, and accounting rules were changed as a result.
Now, a proportionate amount of money must be set aside every year for the decommissioning of high value capital assets with an expected life in excess of 15 years. If nothing else, this acts as a safety net in the event of abandonment.
Comprehensive financial provisioning While the numbers associated with asset retirement were once estimated, they must now be evidenced and substantiated. In other words, accounting law now states that asset retirement provisioning should be carried out in a proven manner, which naturally requires someone with decommissioning-specific expertise to be involved in the exercise. Nobody knows an asset better than the operator who runs it, but that does not mean that the operator knows exactly how to retire the asset with maximum respect for safety, the environment and their bottom line. The many 4 45 Summer 2021
